Article

Trade & Customs 2018: Trends and Conclusions

November 2018

Trade and customs practitioners around the world continue to ride the wave of demand for their services, generated by major tectonic shifts in the trade policies of the US, Europe, China, Russia and countries in the Middle East. News cycles have been dominated by the ramifications of the current US administration’s approach to trade, which has included escalating tariffs on major trade partners, a raft of new sanctions and the re-negotiation of trade treaties. The destabilisation of the old order caused by these “tariff wars” and sanctions has resulted in an immense number of applications for tariff exclusions and legal challenges to said tariffs, both in domestic courts and the WTO. Practitioners also report more aggressive scrutiny from trade authorities around the world. It is safe to say that anti-dumping, import and export matters, sanctions, tariffs and countervailing duties have not been this much in the public eye for decades.

The US sets trade trends

The Trump administration’s “dramatic use of sanctions and tariffs as a policy tool”, as one interviewee put it, has had the most impact on global trade over the past year. The US is using three main mechanisms to impose these tariffs. The first is section 301 of the Trade Act of 1974, which enables the US president to impose tariffs on trade partners for unreasonable and discriminatory trade practices. This has been the primary weapon used to impose tariffs on a huge range of Chinese imports, with the administration citing China’s unfair trade practices, including the forced transfer of US technology and intellectual property. The second mechanism is section 232 of the Trade Expansion Act of 1964, which authorises the president to impose tariffs to protect US national security. And the third is section 201 of the Trade Act of 1974, also known as “safeguard sanctions” which are intended to protect industries threatened by excessive imports. Using a combination of these three mechanisms, the US has imposed tariffs on a broad swathe of goods and commodities from Argentina, Australia, Canada, China, Mexico, India and the EU. Reuters recently estimated that US tariffs cover 4.1 per cent of US imports, and at the time of writing the Trump administration has implemented $250 billion in tariffs on goods imported from China. The imposition of these tariffs has prompted retaliatory action on imported US goods by several governments, giving rise to the “tariff wars”.

The US has acted as a destabilising force to the global trade status quo in other ways. The administration’s decision to cede from the JCPOA in May 2018 has seen the re-imposition and “aggressive enforcement” of sanctions on Iran, causing friction with other nations signed to the agreement. Sanctions on Russian banks, companies and individuals have also featured prominently in the work of international practitioners in the last year. Recent reports of the EU, China and Russia establishing a “special purpose vehicle” to sidestep American sanctions on Iran, and the ICJ’s ruling that the US must erase its new sanctions against Iran, demonstrates the bellicose trade environment globally and the rapid restructuring of the world trade order. The current US executive’s approach to international trade policy also appears to be undermining the role of the WTO and the international trade treaties enshrined under its regulations. American practitioners have observed less active US involvement, and they view the executive’s public attacks on the WTO with a wary eye. Consequently, some question how long international agreements under the WTO will maintain their integrity with a recalcitrant US government in its midst. With so much change and uncertainty, the importance of strong legal advice in the trade sector has perhaps never been greater.

All is fair in love and economic war

The impact of the tariff wars and sanction regimes on the global economy is difficult to gauge at present. JP Morgan estimates that global growth could be cut by 0.25 per cent if tariffs continue to increase, whereas the International Monetary Fund says the fall could be as much as 0.5 per cent by 2020. What is more certain is the impact on the legal market. One source summed up the effects of economic warfare on the legal market best: “Trump’s trade policy has led to paths of new international trade work.”

Due to the size of the US market and its number of trade partners, this boom in work has been observable in many jurisdictions, and has manifested in several ways:

Firstly, it has placed commercial and legal professionals in “unprecedented territory”, as one interviewee put it. For example, it is the first time in 50 years that the US has used safeguard legislation. Furthermore, the use of section 232 in a tariff context is highly unusual, as it is originally intended as safeguard legislation for matters on national security, not economic policy. Consequently, extreme uncertainty has been generated and “people are starting to question the whole global trade system”. This has led to clients now seeking advice on the legality of the current mechanisms used by the US executive to execute its trade policies, with lawsuits launched against the US claiming steel tariffs under section 232 are unconstitutional.

Secondly, US trade policy has led to an increase in lobbying, an activity that often heavily involves leading lawyers in the space. According to one practitioner, clients are "asking if they [the clients] can do anything on the lobbying front" to change the Trump administration’s tune on some of the main issues. The statistics bear this out, with spending on lobbying in the US rising by over $200 million from 2016 to 2017 to reach its highest level since 2010, while the number of lobbying activities recorded on trade matters was over 250 in the first three months of 2018 alone. Meanwhile, the Center for Responsive Politics reports that the total number of clients lobbying the Office of US Trade Representative this year is already at its highest level since 2002, with two months still to go. All sources point towards market players increasing their lobbying activity, with trade lawyers likely to play a key role in offering specialist advice in this area.

Thirdly, practitioners also report “a lot of offshore work” from companies based in countries that are trade partners with Iran and Russia, who are feeling the force of “secondary sanctions”. The correlating impact of these new “paths” has been “an explosive and multi-dimensional” increase in work, with too few specialists to meet the demand. This has produced a legal market that is “not very aggressive, with plenty of work to go around”. US trade specialists in particular have noted a correlating influx of non-specialists into the space. As one put it,“Tariffs are likely leading non-trade lawyers to consult in these areas, because they’re so new and unique that no one can really claim to be an expert.” Respondents commented that this has resulted in a mixed quality of work in their opinion. It has also led to a “separated legal market” between those who want one-off advice from non-specialists and large commercial clients seeking long-term guidance from experts on adapting their own operations in a rapidly changing legislative landscape. Anti-dumping cases have also increased in number significantly over the last year, with “more petitions filed in the past year than for the last 25 years”.

The eye of scrutiny

Aggressive tariffs and combative trade policies are not the only changes afoot in international trade centres. Practitioners in the US and the EU told us of “an uptick in customs enforcement activity” and “more vigorous enforcement on orders” from regulators. Those in the US in particular noted “more audits and valuation classification” orders taking place, as well as the imposition of “self-surveys” designed to get companies to declare their customs business. While this has been the case in the US for several years now, in the EU it is a more recent development, with customs authorities exercising their powers of scrutiny more frequently in major member states. This has generated demand for compliance advice from legal practitioners, which has added to their clients’ overall legal spend. The broader economic effects of this increased scrutiny, beyond an increased demand for counsel and operational costs, are not yet clear. However, sources summarised that that the US market is now “a more enforcement and protectionist environment to work in”, with clients seeking increasing amounts of guidance regarding auditing processes.

Uncertainty in the EU

As has been the case for over two years now, Brexit uncertainty continues to hang over all EU and UK markets. When this uncertainty is combined with work generated by US tariffs, there has been exponential growth in legal work over the past year for European practitioners. As a consequence, respondents this year reported that the ECJ has seen, and will likely continue to see, an increase in cases regarding US tariffs, as well as cases dealing with the eventual Brexit trade deal consequences. Clients also continue to flock to firms for advice on Brexit regarding the integrity of supply chains. In the words of one practitioner, the predominant advice being given is “to find a plan that can replace the UK in the supply chain”, which will presumably not be music to the ears of the UK government.

The future of international trade

It is clear from respondents this year that the predominant concern in many jurisdictions is the lack of certainty in global trade. This is due to the current US administration’s norm-challenging approach to trade policies and international diplomacy, which has wrong-footed several of its most significant trade partners and thrown international treaties into jeopardy. With more combative sanctions regimes, aggressive customs regulation and uncertainty over Brexit, it appears that a perfect storm is being fostered in the market. It will fall to the trade and customs legal specialists to guide clients through the maelstrom. The demand for work in this field will presumably make it an attractive area of practice and will lead to a raft of younger practitioners gaining exposure to trade and customs cases, which will no doubt benefit the global trade bar in the long term.

Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.